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Citation: 2007TCC559
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Date: 20070924
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Docket: 2005-3342(IT)I
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BETWEEN:
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GARTH STEPHENSON,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Hershfield J.
[1] Having
conceded that other deductions claimed and denied in respect of the Appellant's
2003 taxation year are no longer at issue, the Appellant appeals the denial of
a $7,500 deduction claimed in that year in respect of support payments made in
that year to his former spouse.
[2] The facts
and issue in this appeal are straightforward. The Appellant and his former spouse
separated in 1998. Pursuant to an Interim Order of the Court of Queen’s Bench
of Manitoba made in that year, the Appellant was required to
pay monthly spousal support in the amount of $2,000. The Appellant fell behind
in payments and after losing his job in late 2001, a further Interim Order was
sought and obtained in February 2002. This second Interim Order limited
collectible support payments to $750 per month.
[3] In February
2003, a Final Order (consented to by counsel for each of the Appellant and his
former spouse), was issued. At this time, it appears that arrears in spousal
support payments were some $25,000.
[4] Section 4 of the Final Order set out support payment obligations as
follows:
4.0 THIS
COURT ORDERS pursuant to the Divorce Act that:
4.1 The
obligation of John William Garth Stephenson to pay support for Joan Louise
Stephenson is terminated effective February 25, 2003;
4.2 The total arrears of
spousal support pursuant to the Order pronounced October 26, 1998 by Mr.
Justice Mykle to February 25, 2003 are set at $7,500.00.
4.3 The arrears set out in
the previous paragraph of this Order shall be paid to Joan Louise Stephenson as
follows:
4.3.1 by two periodic payments (tax-deductible
to John William Garth Stephenson and taxable to Joan Louise Stephenson)
4.3.2 by payment of $3,469.62 on
May 22, 2003, and
4.3.3 by payment of $4,030.38
forthwith upon pronouncement of this Order.
[Emphasis Added]
[5] At all
times, the Appellant and his former spouse were represented by legal counsel
and to that extent I am satisfied not only of the intent of the Judge - that
the $7,500 payment of arrears be tax deductible - but, to the extent that it is
relevant, I am satisfied, as well, that that was the well informed intent of
the parties.
[6] Appellant's
counsel argued that the payments made by his client to his former spouse pursuant
to the terms of the Final Order, namely $7,500 in 2003, are payments of arrears
and deductible as set down in The Queen v. Barbara D. Sills (formerly
Barbara D. LaBrash), [1985] 2 F.C. 200 (F.C.A.). As well, the Appellant
relied on the case of Norman C. Soldera v. The Minister of National Revenue,
[1991] T.C.J. No. 142 (T.C.C.) which held that a lump sum payment of arrears
did not lose its character as a periodic payment for the purposes of paragraph 60(b)
of the Income Tax Act. The late Chief Justice Garon of this Court found
that the lump sum payment of arrears was deductible because it merely
crystallized the amounts due periodically under a prior Order.
[7] Respondent's
counsel argued that the payments in question settle all arrears and were
thereby a capital payment pursuant to the Supreme Court of Canada decision in
The Minister of National Revenue v. John James Armstrong, [1956]
S.C.J. No. 22 (S.C.C.). Further, Respondent’s counsel relies on two
other cases, namely Elizabeth E. Bates v. Her Majesty the Queen,
[1998] T.C.J. No. 660 (T.C.C.) for authority that the character of a payment, as
taxable or not taxable, is not determinable simply by virtue of a
characterization set out in an Order of a Court and on the case of Susan
Widmer v. Her Majesty the Queen, [1995] T.C.J. No. 1115 (T.C.C.) wherein
Justice Mogan found that a small payment of arrears made to settle a
significant quantum of arrears was, in that case, a capital payment and had
lost its character as arrears.
[8] While I
agree that Judges of Family Courts have no jurisdiction to prescribe tax consequences
in their Orders or Judgments, it is surely imperative to give effect to the
expressly articulated intentions of an Order made by a Superior Court Judge where
a reasonable construction of the terms of that Order allows it. Indeed, in this
case, I find that the only reasonable construction of the Final Order is that
it ordered the $7,500 be paid as arrears. It cannot reasonably be found to be
an Order for the payment of the capital sum of $7,500 in consideration for the
release of all arrears. Paragraph 4.3 of the Final Order expressly says it is “arrears”
that are being paid. This overrides any suggestion in paragraph 4.2 or
elsewhere that the $7,500 is a capital payment.
[9] Indeed, in
general terms, it strikes me as somewhat contrary to the principles set down in
Sills as followed in Soldera, to suggest that a payment of a
portion of arrears should necessarily be seen as a capital payment just because
the same Order terminates further obligations set under a previous Order. The
character of payments as arrears cannot be so readily changed, particularly
where all the parties have knowingly agreed that that was not the intention of
the Order, as evidenced by the express reference in the Order to the payment being
tax deductible. A Superior Court can without question order part payment of
arrears due and with the same stroke of a pen terminate the balance of the
arrears without necessarily tying the two events together as if the partial
payment of arrears was consideration for the termination of the balance. A Court
does not need consideration for the termination of a balance of arrears even in
the case of an Order made with the consent of the parties.
[10] As well, I
note (although a further finding of fact in support of allowing the Appeal is
unnecessary) that the Interim Order of February 2002 appears in effect to have set
new support payments and the Final Order in effect required that it was these arrears
that had to be paid. In effect then, it was the arrears under the 1998 Interim
Order that were terminated. Arguably, this further
separates the $7,500 payment (being the arrears under the 2002 Interim Order)
from the termination of the other arrears (being arrears under the 1998 Interim
Order).
[11] In any
event, I have no problem distinguishing the case at bar from the case in Widmer.
In Widmer, Justice Mogan distinguishes Soldera on the basis of
his accepting the fact that the Order in Widmer made the payment “appear
to be something that it was not”. This only confirms that Justice Mogan
accepted that the intention of the Order, i.e. the intention of the Court,
would not be given effect to find that the payment in that case was other than
a capital payment. That is, the circumstances in that case encouraged a
finding that the substance and intent of the Order was to treat the payment as
consideration for the release of past due support obligations. That is far from
the situation in the case at bar.
[12] As well,
and importantly in my view, I suggest that the decision in Widmer is one
that stands alone and is not a precedent of general application in
circumstances such as those present in the case at bar where the Court making
the Order has, acting within its jurisdiction and without misapplication of any
principle of law, for all purposes characterized the nature of the payments. As
I said in Dale F. Hinkelman v. Her Majesty the Queen, [2001] 3
D.T.C. 732 at paragraph 22:
It
should go without saying that giving full force and effect to an order of a
Superior Court should be facilitated where possible. To do otherwise can do
little else but undermine respect for and confidence in our judicial system.
[13] For these reasons the deduction in the amount of $7,500 is allowed as
a deductible support payment made by the Appellant in his 2003 taxation year.
Signed at Ottawa, Canada this 24th day of September, 2007.
Hershfield
J.
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COURT FILE NO.:
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2005-3342(IT)I
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STYLE OF CAUSE:
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Garth Stephenson and
Her Majesty the Queen
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PLACE OF HEARING:
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Winnipeg, Manitoba
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DATE OF HEARING:
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September 12, 2007
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REASONS FOR JUDGMENT BY:
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The Honourable Justice J.E. Hershfield
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DATE OF JUDGMENT:
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September 24, 2007
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Counsel for the Appellant:
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Bernard J. Rodrigue
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Counsel for the Respondent:
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Ainslie Schroeder
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Name:
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Bernard J. Rodrigue
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Firm:
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Meighen, Haddad & Co.
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For the Respondent:
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John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada
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